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Estimate the price and income demand elasticities

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Reference no: EM132207709

Question: The annual demand function for a particular motor car is estimated as:

D = 41,600 - (5P/3) + (Y2/10,000)

where D = annual demand, P = retail price in GBP and Y = average disposal income.

(i) Given that the retail price next year will be 36,000 GBP, whilst average disposable income is expected to be 28,000 GBP, estimate next year's annual demand. If the manufacturer receives 80% of the retail price for each car sold, estimate the manufacturer's revenue next year.

(ii) Find the retail price to maximise manufacturer's revenue next year

(iii) If the subsequent year the retail price is expected to rise to 38,500 GBP, whilst income should increase around 5%. Estimate demand and manufacturer's revenue for that year. And, use the information to estimate the price and income demand elasticities.

Reference no: EM132207709

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